How Medical Licensing Laws Harm Patients and Trap Doctors

Here it goes: Government licensing of doctors is both morally and economically wrong.

Most organized medical societies including the AMA (American Medical Association) and my own state medical society support government licensing of physicians, on the grounds that it protects the public from incompetent practitioners. But as with all other forms of occupational licensing, medical licensing actually serves primarily to protect the practitioners at the expense of the public. Furthermore, the interaction between current licensing laws and upcoming ObamaCare laws will harm both patients and doctors in unanticipated ways.

Government licensing of physicians is a relatively new phenomenon. Prior to the mid-1800s, there was relatively little regulation over who could or could not practice medicine. But in 1847, the AMA was formed to promote the interests of MD physicians relative to other health practitioners (such as naturopaths and chiropractors). Over the next several decades, the AMA persuaded Congress and state legislators to shut down “substandard” medical schools and impose the current system of state-based medical licensing under licensing boards controlled by physicians. (Some of these other health practitioners eventually survived by forming their own government-sanctioned licensing organizations.)

Nobel Prize winning economist Milton Friedman identified the basic problem with medical licensing in his classic 1962 book Capitalism and Freedom. Friedman observed, “[L]icensure… almost inevitably becomes a tool in the hands of a special producer group to obtain a monopoly position at the expense of the rest of the public.” Licensing laws restrict the supply of practitioners, thus raising prices for patients. Thus, “The public [is] deprived of the medical care it wants to buy and is prevented from buying.”

Nor does licensing ensure professional competence. As a practicing physician, I know first-hand that it’s possible for someone to be a bad doctor yet still hold a state medical license.

I work with many excellent doctors. I also know a few atrocious doctors that I would never let touch me with a 10-foot pole. Yet all of them are licensed by the state of Colorado. In reality, state licensure does not and cannot protect patients from incompetent doctors.

Other private certification agencies provide much better protection for patients than government licensure. For instance, most major medical specialties have private certification boards that set a higher bar than mere state licensure. That’s why doctors typically advise you to seek someone who is “board certified” if you need a specialist such as a pediatrician, neurologist, or orthopedic surgeon.

Similarly, all reputable hospitals have a credentialing committee to oversee which physicians are allowed to practice in their facility. Some of my colleagues are members of these committees at their local hospitals and they work hard to weed out bad doctors. They are motivated by a simple, self-interested reason: the hospital’s reputation can suffer if incompetent doctors practice there. These private entities are much better guarantors of physician competence than mere state licensure.

Government licensure cannot guarantee physician competence. But government licensure can lull patients into a false sense of security. Just as we would never assume that someone possessing a state driver’s license is necessarily a safe driver, patients should never assume that someone possessing a state medical license is necessarily a competent physician. Ultimately, patients should assume primary responsibility for finding a good doctor, using some of the guidelines above, as well as through referrals from friends, family, and trusted physicians. (One good way is to ask your own family doctor, “Who would you send your mother to if she needed to see a specialist in X?”)

More fundamentally, government occupational licensure is morally and economically wrong because it violates individual rights. As Judge Andrew Napolitano recently said, “The state has no moral or lawful authority to restrain A and B from agreeing to exchange a service for a payment, providing that the agreement is voluntary.” Unless there is an issue of force or fraud, the government should leave patients free to seek medical care from willing providers on mutually agreeable terms.

Current medical licensing laws will have an increasingly harmful effect on patients and doctors as ObamaCare is phased in. This will be driven largely by the current shortage of physicians, expected to worsen under ObamaCare. The national shortfall of doctors is projected to reach 60,000 doctors in 2015 and 90,000 doctors by 2020, which amounts to roughly 10-15% of all practicing physicians. This number could climb much higher if a significant fraction of the 34% of doctors who have considering quitting due to ObamaCare actually do so.

ObamaCare also worsens the physician shortage by expanding the number of patients in government medical programs like Medicaid (which is notorious for underpaying physicians). One doctor noted that every time she sees a Medicaid patient, it’s like handing them a $20 bill. Hence, many doctors are choosing to not accept new Medicaid or Medicare patients (although they will likely continue seeing the ones they currently have).

As the New York Times notes, this causes an “invisible shortage” where patients are theoretically covered but have a hard time receiving actual medical care. The NYT notes that in some parts of the country, patients are already “driving long distances to doctors, languishing on waiting lists, overusing emergency rooms and even forgoing care.”

Much of this could be alleviated by relaxing medical licensing laws to allow more “mid-level providers” such as nurse practitioners and physician assistants to care for patients. The ones I’ve worked with are perfectly capable of administering flu shots, treating sprained ankles, and providing other basic medical services. They are also capable of knowing when a problem is sufficiently serious that it warrants the attention of a full-fledged MD.

“Retail health clinics” staffed by such health professionals are especially good at providing affordable high-quality health care, which can be an enormous boon to those on a tight budget. Yet organized medical groups such as the AMA have consistently fought against allowing such mid-level providers greater responsibility, using licensure and “scope of practice” laws to protect their state-sanctioned monopoly on the practice of medicine.

Medical licensure laws will also harm physicians as well as patients. As ObamaCare pushes more patients into government-controlled insurance (e.g., Medicaid, Medicare, and nominally private government-approved plans purchased through the ObamaCare “exchanges”), many doctors will balk at the low payment rates. Government officials will be increasingly tempted to compel physicians to accept these patients as a condition of retaining their license to practice medicine.

This idea has already been proposed in Massachusetts. In 2010, the Massachusetts legislature considered (but ultimately rejected) a bill that would require doctors “to accept 110% of Medicare rates for health insurance for small businesses. For physicians, acceptance of set rates would be as a condition of licensure.”

More recently in 2012, Massachusetts did pass into law new cost controls, which includes overt controls on how doctors can practice medicine linked to licensure. The Wall Street Journal reported:

[A]ll Massachusetts doctors, hospitals and other providers must register with a new state bureaucracy as a condition of licensure — that is, permission to practice. They’ll be required to track and report their financial performance, price and cost trends, state-sanctioned quality measures, market share and other metrics.

This new “Health Policy Commission” will have the power “to ensure that total Massachusetts health spending, public and private, grows no more than projected gross state product through 2017” (emphasis WSJ). In other words, if a doctor or hospital spends too much on a patient’s care, they could be punished.

How hard will a Massachusetts doctor fight for his patients’ medical interests, if his medical license is endangered whenever he spends more money than the government considers appropriate? If a doctor using his best professional judgment decides that an extra MRI scan or a stronger (but more expensive) antibiotic is medically necessary, but the government thinks otherwise, how many doctors will choose their patient over the bureaucrat who can yank his license and destroy his livelihood?

Because health care developments in Massachusetts are often a bellwether for the rest of the country, it may not be long before we see similar practice restrictions imposed on doctors nationally as a condition of retaining their licenses.

Government licensure has thus become a trap for physicians. In the mid-1800s, doctors sought medical licensure as a special “favor” from the government to exclude competition and ensure a state-sanctioned monopoly. But this was akin to accepting a favor from “The Godfather” — there are always strings attached. Now the government will use those licensure laws to keep doctors under its thumb.

Although ObamaCare has many problems independent of medical licensing, licensure laws makes them worse. Conversely, patients could benefit enormously by eliminating licensure laws. Although full repeal of licensure laws is not yet politically feasible, we can seek partial measures that would move us in the right direction, with an eventual goal of a fully free market in medical services.

For example, economist Shirley Svorny has proposed loosening “scope of practice” laws to allow mid-level providers to perform more medical services currently restricted to physicians. Dr. Milton Wolf has proposed allowing medical licenses to be valid across state lines (like our driver’s licenses). This would open the medical market and increase the freedom of physicians to practice where their services are most needed.

Free-market advocacy groups such as the Institute for Justice have scored major victories against unjust occupational licensure laws, such as striking down a Utah law requiring state licensure of hair braiders. Americans should extend this battle to include medical licensing laws. Repealing medical licensing laws would be a win-win for both patients and doctors.

(Note: This piece is adapted from a short talk I recently gave on Milton Friedman and medical licensing. I don’t agree with Friedman on some important issues, but he was excellent on the issue of occupational licensure.)